ETNs and ETFs compared

Transcription

1 ABSA CAPITAL S EXCHANGE TRADED PRODUCTS

2 ETNs and ETFs compared General product features common to ETFs and ETNs are: 1. Listed and exchange traded 2. Easily accessible investment vehicles offering exposure to a wide range of asset classes 3. Low tracking error 4. Daily redeemable to issuer subject to terms and conditions Specific feature of ETNs is that the Investor owns a note, exposing the investor to the credit risk of the issuer NewWave ETNs ETFs Tenor Quasi-perpetual (10-30 years) Perpetual Liquidity Daily on exchange Daily on exchange Recourse Issuer credit (Absa) Portfolio of assets Principal risk Market and issuer risk Market risk Tracking error Low tracking error (only fees) Low tracking error (fees and rebalancing costs) Issuer subscription and redemption Both subscription and redemption in block size Only redemption in block size Pricing and trading Market maker on the exchange Market maker on the exchange

3 NewWave Currency ETNs Each USD, EUR and GBP ETN equals a fixed principal amount of 1 in the respective currency Each ETN will accrue interest on a daily basis at the overnight LIBOR rate minus an applicable interest rate spread Interest will be distributed on a semi annual basis Absa manages its risk under the Currency ETNs by purchasing the underlying reference currency from the market and places this with the Absa Foreign currency money market desk on deposit earning overnight LIBOR minus an applicable interest rate spread. Fees: No fees are charged, the Issuer earns an interest rate spread FUND FACTS (31 August 2012) Note NAV per note Interest Rate Spread NewWave US Dollar % NewWave GBP % NewWave Euro % Annualised Returns of ZAR Exchange Rates Annualised return 1 Year 2 Year 3 Year 5 Year USD/ZAR Exchange Rate 20.14% 7.35% 2.08% 3.32% EUR/ZAR Exchange Rate 5.85% 6.32% -2.06% 1.65% GBP/ZAR Exchange Rate 17.52% 8.64% 1.37% -1.57% Source: NewGold Issuer Ltd 3

4 NewWave currency ETN vs. currency deposits Similar economically, but: Wholesale currency conversion rates vs. retail conversion rates (the difference in the bid/offer price tend to be around 1.5 2% cheaper on both the buy and sell side. Wholesale interest rates vs. retail interest rates (Overnight Libor vs LIBID retail vs wholesale) No exchange control limitations vs. part of offshore allowance Same exposure to credit risk

5 NewWave currency ETN Price Calculation The Price on any relevant calendar day shall be determined as follows: P = (PA + I) x relevant exchange rate PA means the Principal Amount per note I means the accrued interest calculated daily and distributed Where Interest = PA x i x T i = interest rate (Libor - interest rate spread) T= n/360 where days are equal to the number of days in the overnight period, which is generally one day except over weekends or public holidays. Simple Example of a USD ETN USD Overnight LIBOR (average rate since listing) = % Int Rate Spread= 0.10% Therefore i = 0.56% Principal Amount per Note = $1.00 Interest Period = 173 days Daily Interest Calculation = 1* *(1/360) = Total Accrued Interest = *173 = Thus P = = x = R8.4091

6 NewGold The NewGold ETF gives investors the opportunity to benefit from the performance of the value of gold. It is listed and traded on the JSE and fully backed by physical gold. NewGold is: the only ETF in SA linked to the price of gold; the largest ETF in SA; the most efficient, cost effective and secure way for South Africans to invest in gold annual fee only 0.4%* In March 2008, Absa Bank s Shari ah Board, issued a ruling stating that the NewGold ETF is Shari ah compliant. As such, it is in line with Islamic principles of ethical investing. FUND FACTS (31 July 2012) JSE Code GLD ISIN ZAE Listing Date 02 Nov 04 Net asset value R 17,775,035,370 No of issued securities 136,836,300 No of tonnes No of ounces 1,326,508 ETF Performance as at 31 July 2012 Annualised return 1 Year 2 Year 3 Year Since inception NewGold 22.55% 24.76% 21.66% 22.89% Source: NewGold Issuer Ltd 6

7 NewWave Platinum ETN The NewWave Platinum ETN is designed to provide investors with cost-effective exposure to the spot price of platinum in Rands. Listed on the JSE The only note on the JSE that tracks the spot value of Platinum Annual management fee/ter is 0.4% Each security represents 1/100th of an ounce of platinum bullion less the daily accrued management fee FUND FACTS (31 August 2012) JSE Code NEWPLTJ.J ISIN ZAE Listing Date 12 Mar 12 Net asset value R 64,529,320 No of issued securities 508,305 NAV per security R Performance as at 31 August 2012 Annualised return 1 Year 2 Year 3 Year 5 year Platinum ZAR Spot -1.49% 6.75% 9.50% 7.09% Source: NewGold Issuer Ltd 7

8 NewWave Silver ETN The NewWave Silver ETN is designed to provide investors with cost-effective exposure to the spot price of silver in Rands. Listed on the JSE The only note on the JSE that tracks the spot value of silver Annual management fee/ter is 0.4% Each security represents 1/100th of an ounce of platinum bullion less the daily accrued management fee Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 ZAR Silver Spot FUND FACTS (31 August 2012) JSE Code NEWSLVJ.J ISIN ZAE Listing Date 12 Mar 12 Net asset value R 3,480,942 No of issued securities 1,354,452 NAV per security R 2.57 Performance as at 31 August 2012 Annualised return 1 Year 2 Year 3 Year 5 year Silver ZAR Spot % 35.70% 29.53% 24.53% Source: NewGold Issuer Ltd 8

9 NewWave Precious Metals ETNs innovation The NewWave Precious Metal ETNs are the fist ETNs in the SA market that reference the spot price of precious metals Absa Capital purchases the underlying bullion for settlement and holds it in an unallocated bullion account Other ETNs currently listed in the SA market track performance of the underlying futures indices. This exposes investors to an additional risk of the futures index underperforming the spot price due to negative roll yield. Roll yield in traditional commodity investments Investors have traditionally gained exposure to commodity markets via products listed to futures contracts This avoids the impracticalities of holding and storing the physical asset When a futures contract approaches its expiry, investors holding the futures contract will need to roll their position in the current futures contract into the next futures contract. The return generated by holding to maturity and rolling of the futures contract is know as the roll yield As an example, the top diagram on the right shows the futures curve for a commodity (assuming Contract B $84 futures price of a commodity higher than the spot price the contango). It shows that in respect Contract A of today: the spot price of the commodity is $80; the price of the front month futures contract $82 (contract A) is $82; the price of the second month futures contract (contract B) is $84. In a months time, contract A will have reached its delivery date, i.e., the value of the expiring contract A should be equivalent to the prevailing spot price. Similarly, contract B will now have one month to its delivery date and be the front month futures contract. If we assume that all else being equal in the futures curve of the commodity, then the bottom diagram will illustrate the new pricing of contract B after one month This is an illustration of negative roll yield here investor loses $2 in one month by holding and selling contract A even though the spot price did not move. If the futures prices are lower than the spot price, we say that the curve is in backwardation and the investor experiences the positive roll yield Futures indices are based on the assumption that the underlying futures contracts are rolled as described Today price One month later price $80 Current spot price Current date 1 month 2 months $84 $82 $80 Contract B Current spot price = Contract A Current date 1 month 2 months

10 TRACI ETF The NewFunds TRACI ETF tracks the performance of the Barclays Capital/Absa Capital ZAR Tradable Cash (TRACI) Index (three month) total return.the TRACI 3m Index measures the mark-to market value of the income earned from rolling a money market deposit for a 3 month maturity on a monthly basis. The index is made up of four 3-month bank deposits, including Rand Merchant Bank, Nedbank, Standard Bank and Investec with a residual inanabsacallaccount. All interest received is reinvested into the fund by the acquisition of additional ETF units (in the weightings of the Cash Index) so as to increase the net asset value of the portfolio and consequently increase the value of each unit. TRACI ETF CASH HOLDINGS 6% 20% 25% 24% 25% RAND MERCHANT HOLDING NEDBANK STANDARD BANK INVESTEC ABSA CALL ACCOUNT FUND FACTS (31 August 2012) JSE Code NFTRCI ISIN ZAE Listing Date 26 Jan 12 Net asset value R 20,753,479 Last month TER annualised 0.18% ETF Performance as at 31 August 2012 TRACI ETF Realised Yield since Inception 5.42% Source: Absa Capital 10

11 GOVI ETF The GOVI ETF tracks the total return version of the South African Bond Total Return Index, an index consisting of bonds issued by the South African Government which includes only those issues in which the Department of Finance obliges the primary dealers to make a market and constituting the GOVI Index and calculated daily by the JSE. Maturity Bands 27.28% 11.69% 0-3 Years 3-7 Years All coupons received are reinvested into the fund by the acquisition of additional ETF units (in the weightings of the GOVI Index) so as to increase the net asset value of the portfolio and consequently 24.58% 36.46% 7-12 Years 12 Years+ increasethevalueofeachunit. FUND FACTS (31 August 2012) JSE Code NFGOVI ISIN ZAE Listing Date 26 Jan 12 Net asset value R ETF Performance as at 31 August 2012 GOVI ETF Realised Yield since Inception 8.77% Last month TER annualised 0.28% Source: Absa Capital 11

12 ILBI ETF The ILBI ETF tracks total return version of the Barclays Capital/Absa Capital South African Government Inflation-Linked Bond Index, an index consisting of bonds issued by the South African Government which are linked to the South African Consumer Price Index. Maturity Bands ILBs differ crucially from conventional bonds in that the nominal value of the notional changes, in line with the CPI. Thus the real value, not the nominal value, of the bond s notional remains constant. As coupons are expressed in terms of the notional, they too increase in linewiththecpi. All coupons received are reinvested into the fund by the acquisition of additional ETF units (in the weightings of the ILBI Index) so as to increase the net asset value of the portfolio and consequently increasethevalueofeachunit. 43% 10% 47% 3 to 7 years 7 to 12 years 12 years and over FUND FACTS (31 August 2012) JSE Code NFILBI ISIN ZAE Listing Date 26 Jan 12 Net asset value R Last month TER annualised 0.29% ETF Performance as at 31 August 2012 ILBI ETF Realised Real Yield since Inception 3.34% Source: Absa Capital 12

13 etf.absacapital.com one place to find all you want to know about Absa Capital s ETFs 13

14 Contacts Steven Bayne Investments Absa Capital +27 (11) Investments Team Absa Capital +27 (11) FAIS Act Notice and Disclaimer This presentation is made by Absa Capital, the investment banking division of Absa Bank Limited a registered bank in RSA ( Absa ). Absa is regulated by the SA Reserve Bank. Absa Bank Limited is a licensed Financial Services Provider. This presentation is for information purposes only and you must not regard this as a prospectus for any security, financial product or transaction. Absa does not in any way represent, recommend or propose that the securities and/or financial or investment products or services ( the products ) referred to in this presentation are appropriate and/or suitable for your particular investment objectives or financial situation or needs. This presentation is not: (i) advice as defined and/or contemplated in Financial Advisory and Intermediary Services Act, 37 of 2002, ( FAIS Act ) or (ii) any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice or service whatsoever ( advice ). You have to obtain your own independent advice prior to making any decision or taking any action whatsoever based hereon and Absa disclaims any liability for any direct, indirect or consequential damage or losses that you may suffer from using or relying on this presentation even if notified of the possibility of such damage or loss and irrespective of whether or not you have obtained independent advice. This presentation is neither an offer to sell nor a solicitation of an offer to buy any of the products, which shall always be subject to Absa s internal approvals and a formal agreement between you and Absa. Any pricing included in this commentary isonly indicative and is not binding as such on Absa. All the risks and issues related to the products are not disclosed and therefore, prior to investing or transacting, you should fully understand the products and any risks and issues related to or associated with them. The products may involve a high degree of risk including, but not limited to, the risk of (a) low or no investment returns, (b) capital loss, (c) counterparty or issuer default, (d) adverse or unanticipated financial market fluctuations, (e) inflation and (f) currency exchange. The value of any product may fluctuate daily as a result of these risks. Absa does not predict actual results, performances and/or financial returns and no assurances, warranties or guarantees are given in this regard. The information, views and opinions expressed herein are based on third party sources believed by Absa to be reliable and are therefore expressed in good faith. Absa gives no recommendation, guide, warranty, representation, undertaking or guarantee concerning the accuracy, adequacy and/or completeness of the information or any view or opinion expressed herein. Any information on past financial returns, modelling or back-testing is no indication of future returns. All opinions, views and estimates are given as of the date hereof and may change without notice. Absa expressly disclaims any liability for any damage or loss as a result of errors or omissions. Absa, its affiliates and individuals associated with them may (in various capacities) have positions or deal in securities (or related derivative securities), financial products or investments identical or similar to the products. Absa intends to make this presentation available in South Africa to persons who are financial services providers as defined in the FAIS Act. The information and views contained in this presentation are proprietary to Absa and are protected by copyright under the Berne Convention. In terms of the Copyright Act, 98 of 1978, as amended, no part of this presentation may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, electronic scanning, recording, or by any information storage or retrieval system, without the prior permission in writing from Absa. The illegal or attempted illegal copying or use of this information or views may result in criminal or civil legal liability. 14